The Lemon Fool

In 2021, after 15 years during which I managed her funds, generating 12.4% IRR (after tax and costs), my elderly mother decided to move her funds to the Wise, in the form of an IFA business, who duly liquidated her entire portfolio and re-invested it (so 100% churn rate that year) in a selection of the favourites from this particular forum.

The result?

A not-quite-calamitous -9% CAGR over the two years.

Oops.


Fortunately 75% of her wealth is in her own property.

Oops.


Here's what the IFA said to her about II, one of the two ISA managers that she had been using:

"I am afraid that dealing with II has been extremely difficult from the very start. Their service standards are negligible, but that is because they are so cheap they cannot afford the staff to give the kind of service that you would expect. We would never have recommended you invest with II but I believe this was your son's choice. "

"Invest with II"

"so cheap"


Cheap is probably the right word: I don't remember any two year period in which II cost her £28,000 as this shower have!



GS

I'd be concerned about
1) whether this means she doesn't trust you any more
2) how these people got their hooks in her and goot access to persuade her it was a good idea
3) what other slick salesmen will be along shortly to persuade her equity release is a good idea or similar.

Do you have a PoA in place, can you enact it? Could your mother be classed as "vulnerable" and could you therefore claim The Wise had taken advantage of her and threaten action against them?

Perhaps start by explaining she was no more invested with II than she is invested with the bank that holds her current account, they are simply a container for assets.

It sounds like you need to tread carefully to stop this sort if thing expanding, but not too much that you alienate her.

I read on these boards and talk to friends and I realise just how lucky MrsF and I both were when family members including parents just said "you seem to know what you're doing, get on with it" and never once even checked up on what we were doing, let alone tried to offer assistance.


Paul

DrFfybes wrote:I'd be concerned about

1) whether this means she doesn't trust you any more
2) how these people got their hooks in her and got access to persuade her it was a good idea
3) what other slick salesmen will be along shortly to persuade her equity release is a good idea or similar.

Without knowing how that 12.4% IRR was obtained it is hard to say whether the mother did the right thing. If the current portfolio is less risky and more diversified as a result then getting a still reasonable 9% a year might be better for someone of presumably more advanced years than most of us here.

And of course the last two years have not been easy for investors as bonds have crashed and the S&P 500 is lower than it was in late 2021. So 12.4 might not have been attainable anyway.

Lootman wrote:

DrFfybes wrote: then getting a still reasonable 9% a year might be better for someone of presumably more advanced years than most of us here.

I think that was a loss of 9%.

Of course that might not be so bad.

Seasider wrote:I think that was a loss of 9%.

Of course that might not be so bad.

Ah, OK, well if they put her into bonds then minus 9% isn't too bad, you are right. The OP did describe that return as "not-quite-calamitous"

I don't understand why she changed.

GoSeigen wrote:In 2021, after 15 years during which I managed her funds, generating 12.4% IRR (after tax and costs), my elderly mother decided to move her funds to the Wise, in the form of an IFA business, who duly liquidated her entire portfolio and re-invested ....

Did you have the satisfaction of tracking your chosen investments during that period to show her what would have been?
Or was your style too dynamic to make that realistically impossible?

V8

Wow, thanks for the responses and sorry to come here and basically moan after seeing those performance figures.

To add a bit of context:
-I moved out of the UK, and she wanted someone who could sit down with her and talk about the investments
-COVID
-She had the ear of people in her church who steered her to the current outfit.
-Mental health issues

My mother is/was reasonably compos mentis when she made the switch but is fiercely independent and obstinate, when she settles on a course of action not much will divert her.


The investment strategy was not particularly dynamic. The portfolio was reasonably defensive most of the time if somewhat concentrated, dominated by gilts and bonds for a long period. By the switch I think all the gilts were sold and the corporate bonds were in the middle of a purple patch. It was maybe close to a 60/40 mix with the 40 mostly corporate paper, the 60 mostly bank stocks and index trackers. I suspect the Wise put a fair amount back into gilts and FI right at the top of the market, a reversal of the previous allocation moves.

I have no hope of changing my mother's mind on this (even if we got on better than we do), I just have sit and watch whatever car crash evolves. Maybe one day she'll have had enough and ask me to help, but I'm not holding my breath.


GS
P.S. I never had any major complaint with II myself, just slightly irritating that they have limited bond support.

GoSeigen wrote:In 2021, after 15 years during which I managed her funds, generating 12.4% IRR (after tax and costs), my elderly mother decided to move her funds to the Wise, in the form of an IFA business, who duly liquidated her entire portfolio and re-invested it (so 100% churn rate that year) in a selection of the favourites from this particular forum.

The second half of this board's name notwithstanding, the great majority of "favourites" here are ITs, and ITs have always been anathema to IFAs, so which favourites from this particular forum are you referring to?

mc2fool wrote:

GoSeigen wrote:In 2021, after 15 years during which I managed her funds, generating 12.4% IRR (after tax and costs), my elderly mother decided to move her funds to the Wise, in the form of an IFA business, who duly liquidated her entire portfolio and re-invested it (so 100% churn rate that year) in a selection of the favourites from this particular forum.

The second half of this board's name notwithstanding, the great majority of "favourites" here are ITs, and ITs have always been anathema to IFAs, so which favourites from this particular forum are you referring to?

Okay, this is likely to be an educational moment for me, I don't normally go anywhere near these things, and couldn't explain the difference between a unit trust and an investment trust so I'm in danger of having insulted users of this forum with my ignorance.

My mother's capital is invested in several members of the list in this post. The ones I've looked at state in their documentation that they are an OEIC. Do they fall under the ambit of this board?

If there is any mileage in the discussion I'll post a list of the funds; in the meantime I'm ready for a flogging



GS

Just for my clarification, GoSeigen, when you say II do you mean ii, i.e. Interactive Investor?

I have to say GS my heart sunk for you when I read:

She had the ear of people in her church who steered her to the current outfit

A very close (religious) friend (just retired) was inveigled into a blatant Ponzi scheme by one of the 'elders' in her church (community based), who had been receiving wonderful guaranteed returns from his investment. My friend initially received some decent returns on her initial deposits. She then (under persuasion) mortgaged her home and invested the lot into the scheme. I pleaded with her not to and basically the friendship broke down. She ended up having to return to work and renting a small place. The whole community lost a shedload of money.

T7

terminal7 wrote:I have to say GS my heart sunk for you when I read:

She had the ear of people in her church who steered her to the current outfit

A very close (religious) friend (just retired) was inveigled into a blatant Ponzi scheme by one of the 'elders' in her church (community based), who had been receiving wonderful guaranteed returns from his investment. My friend initially received some decent returns on her initial deposits. She then (under persuasion) mortgaged her home and invested the lot into the scheme. I pleaded with her not to and basically the friendship broke down. She ended up having to return to work and renting a small place. The whole community lost a shedload of money.

T7

My wife was almost convinced by a German friend to do something similar. Both are highly qualified academics in the Life Sciences with no financial sense or interest whatsoever. Her friend had invested loads into some kind of legal cannabis growing organisation in Germany and the returns looked staggering. I simply said that if it looks too good to be true, then it probably is, otherwise every man and his dog would be doing it.

She saw sense and didn't invest. One year later of course, the truth came out and the scheme collapsed.

Steve

GoSeigen wrote:

mc2fool wrote:The second half of this board's name notwithstanding, the great majority of "favourites" here are ITs, and ITs have always been anathema to IFAs, so which favourites from this particular forum are you referring to?

Okay, this is likely to be an educational moment for me, I don't normally go anywhere near these things, and couldn't explain the difference between a unit trust and an investment trust so I'm in danger of having insulted users of this forum with my ignorance.

Well, the primary difference between ITs and OEICs/UTs (commonly known as "funds") is that ITs are closed ended and OEICs/UTs are open ended, meaning that ITs have a fixed amount of capital and OEICs/UTs have a variable amount, the consequence of which is that ITs are regular(ish) companies that are traded on the stock market, whereas OEICs/UTs have to be bought from and sold back to the OEIC/UT itself.

There are some other differences which I'll leave you to look up; there's plenty of explanations around: https://www.google.com/search?q=investment+trusts+vs+funds

However, the real difference from the point of view of IFAs is a historical one: OEICs/UTs used to give IFAs kickbacks for investing their clients with them. Typically 3% of the amount invested initially and then 0.5% of the holding's value "trail commission" each and every year thereafter. ITs, OTOH, never gave out any kickbacks, and so it's easy to understand why IFAs put their clients into OEICs/UTs and wouldn't even consider ITs.

The FCA's Retail Distribution Review (RDR) banned those kickbacks a few years back (2012) but the disregard IFAs have towards ITs continues.

GoSeigen wrote:My mother's capital is invested in several members of the list in this post. The ones I've looked at state in their documentation that they are an OEIC. Do they fall under the ambit of this board?

If there is any mileage in the discussion I'll post a list of the funds; in the meantime I'm ready for a flogging

Yes, they do, but that list is from the Investor's Chronicle and includes both ITs (the ones with EPICs) and OEICs/UTs (the ones with ISINs), and despite being under the ambit of this board, generally (with trackers and a couple of other exceptions aside) the denizens of this board overwhelming prefer ITs over OEICs/UTs, hence my comment.

Yes, sure, why don't you post the list; I'm sure we'll all curious. Curious also as to which platform they moved your mum onto too...

(The difference between UTs and OEICs is one of legal structure, and that UTs have a bid-offer spread and OEICs don't, but otherwise they're much the same.)

mc2fool wrote:the denizens of this board overwhelming prefer ITs over OEICs/UTs, hence my comment.

I think you are possibly over estimating the popularity/security/performance of ITs. E.G. how many of us hold a sizeable chunk in Fundsmith (an OEIC) , and my trackers are ETFs (often outperforming my ITs). And there are problems with ITs - volatility due to the discount, and poorer protection than OEICS. The purchasers of the Woodford OEIC got most of their money back - unlike the Woodford IT purchasers.
I hold a mixture of OEICs, ITs and ETFs - hopefully the better ones, but I wouldn't say any category is superior to the other.

mc2fool wrote:Curious also as to which platform they moved your mum onto too...

IFAs have access to portals not generally available to the retail investor. Theses portals tend to be limited to OIECs and "added value" collections of OIECs. Charges would tend to be higher than the retail alternatives.

IFAs have a package of reasons (or is excuses a better word?) for not advising investment in ITs. One is that they are "riskier" by virtue and use of an ITs borrowing powers.

scotia wrote:

mc2fool wrote:the denizens of this board overwhelming prefer ITs over OEICs/UTs, hence my comment.

I think you are possibly over estimating the popularity/security/performance of ITs. E.G. how many of us hold a sizeable chunk in Fundsmith (an OEIC) , and my trackers are ETFs (often outperforming my ITs). And there are problems with ITs - volatility due to the discount, and poorer protection than OEICS. The purchasers of the Woodford OEIC got most of their money back - unlike the Woodford IT purchasers.
I hold a mixture of OEICs, ITs and ETFs - hopefully the better ones, but I wouldn't say any category is superior to the other.

ETFs are elsewhere. The comment was about what folks prefer between the two types (ITs over OEICs/UTs) discussed on this board.

And, yes, as I said "generally (with trackers and a couple of other exceptions aside) the denizens of this board overwhelming prefer ITs over OEICs/UTs" and Fundsmith was one of the exceptions I was thinking of (and Lindsell Train).

2022 was the worst year ever for bonds, since started recording in 1976. Of course ukraine-russia made it bad year for stocks too. 2009-19 was an amazing 11 year bull market than may never be repeated. So Mey be comparing apples with pears.

mc2fool wrote:ETFs are elsewhere. The comment was about what folks prefer between the two types (ITs over OEICs/UTs) discussed on this board.

And, yes, as I said "generally (with trackers and a couple of other exceptions aside) the denizens of this board overwhelming prefer ITs over OEICs/UTs" and Fundsmith was one of the exceptions I was thinking of (and Lindsell Train).

Agreed - I also have Lindsell Train (and others).
Apologies -I should also have agreed with your general point that experienced investors on this site, with substantial investments, probably favour ITs. But, in my opinion, for new investors building up a portfolio in equities, arguably OEICS/UTs are probably a safer and cheaper option with regular smallish sums that can be spread over a number of funds. Its certainly how I started. So If I see a request for information on the basics of equity investments, I would not immediately jump to the defence of ITs. But I know that I may be ploughing barren ground for many of the denizens on this board.
PS - I appreciate the language - its a long time since I saw or used "denizens", and I nearly wrote dezinens in reply

mc2fool wrote:Well, the primary difference between ITs and OEICs/UTs (commonly known as "funds") is

[...]

Yes, sure, why don't you post the list; I'm sure we'll all curious. Curious also as to which platform they moved your mum onto too...

(The difference between UTs and OEICs is one of legal structure, and that UTs have a bid-offer spread and OEICs don't, but otherwise they're much the same.)

Thanks for the IT/UT primer, very helpful. I only have a couple of minutes available now so can't do a substantial post.

Here's the list in no particular order but the five largest positions by current value are marked with an asterisk, each approx 9-11% of the total.

*Artemis US Select Class I (Acc)
ES AllianceBernstein Sustainable US Equity Fund I (Acc) Fidelity Emerging Markets Class W (Acc)
Fundsmith Equity Fund Class I (Acc)
GCP Infrastructure Investments Ltd (GCP)
HICL Infrastructure Company (HICL)
*JPMorgan Global Bond Opportunities C (Acc)
*LF Brook Continental European P I (Acc)
Liontrust UK Smaller Companies I (Acc)
*M&G Emerging Markets Bond Class I (Acc)
*Royal London Sustainable Leaders C (Acc)
SVM UK Opportunities Institutional Class B (Acc)

The platform seems to be something called Transact, which I also am not familiar with.


GS